Not All International Monetary Shocks are Alike for the Japanese Economy

37 Pages Posted: 7 Feb 2014 Last revised: 10 Feb 2014

See all articles by Ronald A. Ratti

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance

Joaquin Vespignani

University of Tasmania - School of Economics and Finance

Date Written: February 1, 2014

Abstract

It is found that over 1999:1-2012:12 China’s monetary expansion influences Japan through the effect of China’s growth on world commodity prices, increased demand for imports, and exchange rate policy. China’s monetary expansion is associated with significant increases in Japan’s industrial production, exports and inflation, and decreases in the trade-weighted yen. In contrast, U.S. monetary expansion results in contraction in Japan’s industrial production, exports and trade balance (expenditure-switching). Monetary expansion in the Euro area does not significantly affect Japan. Structural vector error correction models are estimated. Results are robust to various contemporaneous restrictions for the effect of international monetary variables, the interaction of foreign and domestic variables and to factor augmented VAR to identify monetary shocks.

Keywords: International Monetary shocks, Japanese economy, Oil/commodity prices, SVEC models

JEL Classification: E52, F41, F42, Q43

Suggested Citation

Ratti, Ronald A. and Vespignani, Joaquin, Not All International Monetary Shocks are Alike for the Japanese Economy (February 1, 2014). CAMA Working Paper No. 14/2014, Available at SSRN: https://ssrn.com/abstract=2390991 or http://dx.doi.org/10.2139/ssrn.2390991

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance ( email )

Sydney, NSW 1797
Australia

Joaquin Vespignani (Contact Author)

University of Tasmania - School of Economics and Finance ( email )

Commerce Building,
Sandy Bay Campus
Sandy Bay, TAS, Tasmania 7005
Australia

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